Governor Calls Special Session On Rainy-Day Fund

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SACRAMENTO (AP) – Saying the state’s budget surplus should be used to pay down debt, Gov. Jerry Brown on Wednesday called a special session of the Legislature to make changes to a rainy-day fund measure on the November ballot.

He wants to replace the current ballot measure, which seeks to divert more state revenue into the rainy-day fund and would make it harder to tap the money except in case of emergencies such as wildfires or earthquakes.

Instead, Brown wants a new constitutional amendment that will focus on stabilizing the budget and allow future governors and legislatures more flexibility in using it.

He wants to fund the reserve account by setting aside some capital-gains revenue when it spikes, as it is doing this year. The money would then be reserved for school spending and for paying down debt and unfunded liabilities.

“We simply must prevent the massive deficits of the last decade, and we can only do that by paying down our debts and creating a solid rainy day fund,” the governor said in a statement.

Voters approved a state rainy-day fund in 2004, filling it with 3 percent of the state’s annual revenue. The governor’s office said the current fund has no restrictions on when the money can be withdrawn and requires deposits even in years when the state is running a budget deficit.

Brown’s changes would allow lawmakers to direct as much as 10 percent of general-fund revenue to the rainy-day account. It would do so using excess capital gains revenues, which has been a source of budget volatility because it swings year to year. No more than half that money could come out in the first year of a recession, and the state would be required to use multiyear forecasts to plan for the long term.

And to protect schools from deep cuts like the ones during the recession, Brown would create a new education reserve to smooth out spending.

The proposal received immediate buy-in from some in the business community.

“Adopting an effective rainy-day reserve should be the state’s top fiscal policy,” Allan Zaremberg, chief executive of the California Chamber of Commerce, said in a statement. “California’s budget crises were caused by the Legislature spending one-time revenues for ongoing programs. A solid reserve requirement will remove the California budget from the fiscal roller coaster.”

Assembly Speaker John Perez, D-Los Angeles, who has called for changing the ballot measure, said he welcomed the governor’s call for a special session starting April 24.

“We need to establish a solid system for saving money in good years, so that we can better weather the bad years,” Perez said in a statement.

Republicans have criticized Democrats for trying to weaken the current measure, ACA4, which was the result of a 2010 budget compromise brokered by Democrats, Republicans and then-Gov. Arnold Schwarzenegger, a Republican. That measure originally was supposed to go before voters in November 2012.

Replacing ACA4 won’t be easy for the governor because it requires a two-thirds vote of the Legislature. While Democrats have a slim supermajority in the Assembly, the Senate recently dropped below two-thirds majority when it suspended three Democratic lawmakers caught up in separate criminal cases.

Senate Republican leader Bob Huff said Brown’s announcement suggests he is serious about improving the rainy day fund, and Assembly Republican leader Connie Conway said she was pleased that GOP lawmakers will have an opportunity to be heard. Republicans are insisting that any new fund be protected from raids by the majority party.

“Republicans will not support a rainy-day fund that diverts from the initial purpose to actually save money, or one that allows the majority party to dip into the savings as much as they want, whenever they want,” Conway said in a statement.

Brown’s finance director, Michael Cohen, said Wednesday that the existing rainy day fund is too loose and noted the state has suspended deposits every year since 2007. But the ballot measure slated for November locks in a formula that is too strict, making it hard for the governor and lawmakers to access funds during fiscal or natural-disaster emergencies.

“Our proposal is stronger in terms of more restrictions on when you can take it out, but still gives enough flexibility that we can address our fiscal difficulties,” Cohen said.

Brown is emphasizing fiscal restraint despite a surplus this year. According to the Brown administration, the state has so far collected $1.4 billion more than expected this budget cycle. Brown’s budget already forecasts a $106.8 billion general fund, the highest in state history.

In the spending plan he proposed in January, Brown sought to boost K-12 funding by nearly $4 billion and spend $11 billion to pay down debts, including $6 billion more than is owed to schools from previous budgets that underfunded education. He is proposing to put $2.3 billion in reserves, including $1.6 billion in a rainy-day fund for fiscal emergencies.